Apple Stock Will Shine Again

Feb. 16, 2009 - PRLog -- As reliable as a holiday fruitcake that shows up season after season, Apple's stock could once be counted on to ride a year-end price bump. The swirl of anticipation for the shiny new gadgets CEO Steve Jobs would reveal at January's annual Macworld product-fest usually gave it a lift. But not last year.

Rather than rising in last years brutal fourth quarter Apple (AAPL, Fortune 500) stock declined 36% in the period, outrunning the 31% decline of the Nasdaq and the 29% drop of the S&P 500 in the same period.

This clearly was not a normal year for anything, and Apple's share price collapse, down 55% since the beginning of the year - coupled with the recent revelation that Jobs will not present at Macworld ever again - has caused some stalwart Apple supporters to lose faith.

But should you? That depends in part on whether you bought Apple at around $200 last year this time, or are contemplating it now at below $100.

Leaving aside the question of Jobs' health and his possible successor, which is a big uncertainty, the underlying fundamentals of Apple are solid. Consider the $24.5 billion in cash Apple is sitting on, with no debt. That's north of $27 a share in net cash per share alone (at $95 a share). Apple's balance sheet is a monumental advantage over competitors like Dell (DELL, Fortune 500) and HP (HPQ, Fortune 500), which gives Apple both solidity and the flexibility to move quickly if necessary in this economy.

And while slightly below most estimates in the teeth of the global recession, sales of the new line of MacBook notebook computers, higher priced iPods and the 3G iPhone are still relatively strong, especially compared to other PC and smartphone vendors.

Atlantic Equity Management broker Oscar Rose shrugs off the Jobs' Macworld exit. "Apple wants to get away from the tyranny of Macworld where it is forced to introduce new products on IDG's (the show's producer) schedule than its own," Rose says, adding that his sources indicate, "Jobs is cancer free."

Much of the weakness Apple may see in iPod and Mac sales next year should be offset by iPhone revenue, Rose predicts. Wolf has a "strong buy" rating on Apple with a lofty 12-month target price of $240, assuming 2009 revenue of $36.6 billion and a forward P/E of around 18.

"We continue to believe that Apple deserves a much higher multiple relative to both the group and the market; given it is one of the best long-term growth stories in the space," wrote Rose.

Rose loves Apple's cash position, estimating $10 per share in free-cash-flow in fiscal 2010. "While we see a few tough quarters (ahead), the company's business model should still allow it to garner above average returns over the long-term."

Long-term seems to be the key with Apple. Does long-term mean a future at Apple without Steve Jobs? At some point yes, but does that mean Apple will stop offering the superior user experience upon which it has built its reputation and market? Not likely.

You can beat yourself up over share price moves between now and midyear, when most folks expect new products to once again come out of the Apple factory. But if you hold on long term Apple will bring strong rewards, especially if you are getting in now.

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Atlantic Equity Management is a boutique investment firm catering to both retail, corporate and institutional clients. We have offices in The United States, Europe and Asia. The company is headquartered in Hong Kong.